Hong
Kong’s securities watchdog is set to launch an appeal after it lost an insider
trading case last year against New York-based hedge fund Tiger Asia Management, underscoring Hong Kong’s lack of power over Hong
Kong-listed, offshore-domiciled firms, according to media reports.   

Hong
Kong’sSecurities and Futures Commission will next week try to overturn the
ruling that it cannot seek civil remedies fromTiger Asia under a law used to
freeze the assets of suspected wrong-doers, according to Bloomberg. If it is upheld, the ruling could set a precedent to make it easier for the SFC to punish market misconduct.

The
SFC last year alleged in court filings that one of the projects that received backing
from Tiger Asia and Tiger Management founder Julian Robertson, traded on
advance information from bankers arranging placements of China Construction
Bank and Bank of China in 2008 and 2009. The SFC is trying to freeze Tiger Asia’s
assets in Hong Kong. Tiger Asia, which has no physical presence in Hong Kong,
denies the allegations.

"If
a person is not in the jurisdiction but their assets are, then the court can
decide whether there are grounds to freeze them," Mark Steward, the SFC's
enforcement director, said in an interview with the newsier. "Clearly we
are attacking some vested interests who have a lot to lose if we succeed."

Experts
say if the appeal is upheld, it could be a landmark for Hong Kong
securities law. Richard Chalk, partner at law firm Freshfields Bruckhaus
Deringer, told WealthBriefingAsia: "The case is important for two reasons.
First, it is consistent with the growing trend of regulators to focus on hedge
funds to ensure that they are not used for illicit purposes, such
as insider dealing, as witnessed by the high profile prosecution in
the US last year ofRaj Rajaratnam (11 years in prison and $157 million in
criminal and civil fines).”

“Secondly, in
seeking to obtain orders from the High Court to freeze Tiger Asia's assets in
Hong Kong, and using that as a basis for seeking other remedies against Tiger
Asia, the SFC is seeking to punish market misconduct in a way which avoids
it having first to bring either criminal proceedings or civil proceedings
before the Market Misconduct Tribunal,” he added.

“The
Court of Appeal will need to decide whether the SFC's approach drives a
coach and horses through the dual civil and criminal regime which operates in
Hong Kong in respect of market misconduct."   

Hong
Kong criminalized market manipulation in 2003 but prosecuting suspected offenders
is not always straightforward. Overseas investors make up 46 per cent of
equities trading turnover for the twelve months preceding September 2012,
according to the most recent Hong Kong stock exchange data.

Almost
a quarter of Hong Kong-listed firms are incorporated and domiciled elsewhere,
according to data compiled by Bloomberg.
Mainland Chinese companies made up 46 percent of the exchange's market
capitalization through the end of December, according to stock exchange
statistics.